October 19, 2016

On July 1, 2016, the USEPA published its interim final rule that adjusts the statutory civil monetary penalty amounts. See 81 Fed. Reg. 43091. The rule was developed after passage of the Federal Civil Penalties Inflation Adjustment Act. That legislation establishes the formula for inflation adjustments.

The rule translates the original statutory civil penalty amounts to today’s dollars (with rounding to the nearest dollar). While the USEPA has no discretion to vary the amount of the adjustments, the decision to impose penalties is still discretionary under the USEPA various civil penalty policies. The penalty policies have a matrix that considers such things as the seriousness of the violation, good faith efforts to comply, economic benefit and ability to pay.

The rule implementing the adjustments to the civil penalties became effective on August 1, 2016.

The flood cleanup may involve many hazards and may provide opportunities for violation of environmental disposal laws such as those covering demolition activities, debris cleanup and removal and hazardous waste operations and disposal. Only those with proper training, equipment and experience should conduct cleanup activities, especially those activities related to hazardous waste operations and disposal.

The flooding and resulting cleanup may also provide cover for the illegal disposal of hazardous substance and hazardous waste. We shall see if USEPA CID is watching carefully.

August 12, 2016

An issue that has come to the forefront for the USDOJ is the decided lack of the prosecution of individuals in environmental criminal matters. In response, the USDOJ has hardened its stance as to the prosecution of individuals who engage in corporate malfeasance. New rules have been issued with a wide sweeping guidance for federal prosecutors. The new rules will apply in all investigations of corporate wrongdoing, not just investigations of environmental wrongdoing.

In September 2015, Deputy Attorney General Sally Yates issued a memorandum containing new guidance in a document titled “Individual Accountability for Corporate Wrongdoing” (the so-called “Yates Memorandum”). The Yates Memorandum sets out comprehensive guidelines that federal prosecutors should follow, and it gives federal prosecutors potent new tools to use in prosecuting individuals who are implicated in corporate misconduct. Now, under the Yates Memorandum, there are six protocols that must be followed when investigating corporate misconduct.

The six protocols are: first, if a company wants “cooperation credit” it must now provide the USDOJ with all relevant facts relating to the individuals who are responsible for the actual misconduct (this does not mean that attorney-client communications must be waived – that will be a calculated decision by the company) and this applies to both criminal and civil investigations; second, federal prosecutors are now directed to focus their investigations on individuals from the outset when conducting the investigation (to encourage employees with knowledge to provide information and it also increases the number of persons subject to prosecution); third now civil investigators and criminal investigators will regularly share information (this allows civil and criminal cases to be developed in tandem); fourth, individuals will not be released (criminally or civilly) when the company enters into a settlement with the USDOJ unless there are “extraordinary circumstances”; fifth, any USDOJ resolution of a corporate investigation must include a plan to resolve investigations of individuals (reasons to drop investigations must be put in writing and approved by either the attorney general or the deputy attorney general); and finally, USDOJ civil enforcement attorneys are instructed to focus on individuals, not just the company, and to consider factors other than the wrongdoer’s ability to pay when deciding whether to bring suit.

The Yates Memorandum has been incorporated into the US Attorney’s Manual. The Manual instructs federal prosecutors to focus on individual wrongdoing from the outset of any corporate misconduct investigation. According to the Manual, holding the proper individuals accountable for corporate malfeasance is necessary.

In December 2015, the USDOJ also announced that efforts to enforce environmental and safety laws will be intensified by adding environmental criminal counts to prosecutions related to worker safety. Worker safety issues are typically misdemeanors; environmental crimes allow the imposition of greater penalties.

These three documents taken together mean that the corporate senior management and other corporate employees should take the necessary precautions in the event of a federal criminal investigation into environmental violations. Corporations will no longer be able to enter into global settlement agreements, which resolve liability on behalf of the company and also cover all of the company’s employees, officers and directors. The individuals also accused of wrongdoing will need to resolve their cases directly with the USDOJ.

July 18, 2016

There has been a considerable “uptick” in civil Consent Agreement and Final Orders (“CAFOs”) executed by the United States Environmental Protection Agency (“USEPA”) Region 6. I have heard from numerous sources that have confirmed this “uptick.” The specific targets of this enforcement are Conditionally Exempt Small Quantity Generators and Small Quantity Generators.

The basis of the CAFO is from an USEPA document review. The USEPA looks up a company’s generator status and compares it to documented disposal activities. If the disposal is greater than the claimed status (i.e. company/facility claims small quantity generator status and there is more than the allowed generation and disposal), then the USEPA issues the CAFO. The CAFO is mailed directly to the entity, and it requests that the entity respond to the CAFO concerning its generator status not matching its waste disposal activities. The USEPA has been targeting Conditionally Exempt Small Quantity Generators and Small Quantity Generators for the CAFO waste issues. The CAFOs have “requested”

Corrective Action be taken immediately; including the adjustment of the generator status;

An inspection (USEPA is only writing CAFOs from waste records);

The installation of Standard Operating Procedures for hazardous substances; and

The payment of fines associated with the CAFO.

Reportedly, there has been very little negotiation or leniency on the part of the USEPA when issuing the CAFOs. A CAFO can cost more than $100,000.00 just for the fine.

With that being said, there are steps you can take and programs that you can use to help fix or reduce the issues before the USEPA comes knocking.

In Texas, there is the audit privilege program, the Texas Environmental, Health, and Safety Audit Privilege Act (“Audit Privilege Act”). Some states have similar type privilege laws, while other states do not. In Texas, the Audit Privilege Act allows a company to notify the TCEQ that it will be conducting a self-audit of its environmental, health, and safety programs (in the context of the CAFO cases, it is a waste audit). There are benefits of conducting an audit under the Audit Privilege Act which include: certain documents and information gathered as part of the environmental self-audit are privileged from disclosure; the Audit Privilege Act also provides certain immunities from administrative or civil penalties for the violations voluntarily disclosed and corrected within a reasonable amount of time; there is typically a memorandum of understanding between the USEPA and the state regarding the particular state’s audit privilege act.

Bottom line, you should take steps to make sure that all paperwork documentation regarding generator status is complete and up to date. If there is “generator status” or “waste” issues or questions, you should consider conducting an audit under the particular state audit privilege law to ensure that the generator status is correct.

The cost to comply (doing the audit and correcting any deficiencies in the generator status submissions) is far less than the cost of the CAFO plus the cost to comply.

July 06, 2016

Hunt County, Texas is aggressive in its enforcement actions and has retained a private law firm to prosecute an environmental enforcement action for the alleged illegal disposal of waste material. The private law firm was retained on a contingency-fee basis (the law firm gets to keep a percentage of whatever is collected). Hunt County is seeking as much as $2,000,000,000.00 (yes, that is “billion”) in fines for the alleged improper waste disposal. Under a specific statutory provision, Hunt County filed the lawsuit in Austin, Texas, Travis County (not Hunt County). The Dallas Morning News published an article on the case on June 24, 2016.

The issue, under this arrangement, is that the governmental entity and the law firm each have a perverse incentive to sue for as much money as possible and demand large sums in settlement. Some critics call it old fashion patronage (elected officials reward lawyers who give money to their campaigns). The counter argument is that the contingency fee contracts can be an effective response to well-funded defendants.

There are currently about fifty or so of these types of cases across Texas. The “sales pitch” is that local governments have zero risk (they are not paying an hourly rate) and can earn potentially big revenue from enforcing state environmental laws. The question is, however, is it an abuse of power. The City of Houston has a very robust environmental criminal enforcement program – so robust that a state law was passed requiring local governments to get permission from the TCEQ before proceeding.

Most of the larger cities in Texas just let the city attorney’s office handle these types of enforcement cases.

June 30, 2016

On June 15, 2016, the Interagency Suspension and Debarment Committee (ISDC) released its annual report to Congress setting out statistics and providing a summary of federal agency suspension and debarment activities for the 2015 fiscal year. The intended purpose of suspension and debarment is to protect the government and not to punish for past misconduct.

While across the board at most federal agencies, the number of suspensions, debarments, and proposed debarments had been steadily growing (fiscal years 2009 through 2014), the USEPA had fewer suspensions, debarments, and proposed debarments than in years past (the USEPA is known for its active program). Here are the numbers:

88 suspensions in 2015 (down from 119 in 2014);

137 proposed debarments in 2015 (down from 176 in 2014); and

89 debarments in 2015 (down from 148 in 2014).

There has been, according to the ISDC report, an increase in the use of alternatives to suspension and debarment. Agencies have demonstrated a willingness to enter administrative agreements and other mechanisms without recourse to suspension or debarment. The alternatives to suspension and debarment make it important to consider a strategy of early engagement with the relevant suspension and debarment officer when an investigation begins.

June 17, 2016

The Wall Street Journal ran an article today (http://www.wsj.com/articles/why-does-the-irs-need-guns-1466117176) that the number of “non-Defense Department federal officers authorized to make arrests and carry firearms (200,000) now exceeds the number of U.S. Marines (182,000).” And then asks the question: “What exactly is the Obama administration up to?” I would argue it is not just the Obama administration – go back to Reagan on forward. The number of federal officers with arrest-and-firearm authority numbers over 200,000 today.

According to the article, from 2005 through 2014, the USEPA spent $3,100,000.00 on guns, ammunition and military-style equipment. And since 2005, the USEPA has put nearly $800,000,000.00 into the CID. You would think with an investment like that, the USEPA CID would have produced more results.

It does raise civil liberties concerns about the militarization of federal, state and local police forces.

June 10, 2016

It has often been said that the only difference between an environmental criminal investigation and civil enforcement is who discovers the violation first. And how does a violation get uncovered, as there are numerous instances of a company thinking it is in full compliance when in fact it is not? It can happen in a number of ways, such as happenstance (the criminal investigator just happens to be driving by and sees something deemed “suspicious”), or by design (a review of reporting submissions by the company). It can happen from within the company (a disgruntled employee, a pissed off ex-employee for instance). The public, in general, can get involved (the USEPA has a link on its web-site to report violations or the citizen can just pick up the telephone and call). It is not always a case of midnight dumping or a catastrophic event.

There are numerous examples of how an investigation gets started. There is active law enforcement. For those of you familiar with the City of Houston, they have a very active environmental enforcement team that cruises the city looking for violations (the City of Houston brings in more revenue from its environmental enforcement than any other criminal enforcement initiative). There is, what I will call, passive law enforcement (the USEPA has tagged it “Next Gen.”). While not criminal in nature, yet, the USEPA Region 6 has been reviewing documents submitted regarding generator status and comparing that to the company’s waste disposal activities and when they do not match, issuing a Consent Agreement and Final Order (“CAFO”) to the company, which is, essentially, non-negotiable and carry stiff penalties.

I have had cases where a current employee was upset about getting passed over for a promotion and in an attempt to “show them” contacted the USEPA about the company activities and to provide internal documents and other information. I have had cases where neighboring businesses have made odor or noise complaints that have developed into environmental crimes investigations. I have had cases where the criminal investigation began as a result of a voluntary disclosure to the USEPA.

The upshot is, that you never know, necessarily, what or who will trigger the investigation. The Louisiana Department of Environmental Quality (“LDEQ”) recently announced the arrest of an individual for alleged felony illegal disposal of harmful substances and aggravated criminal damage to property as he allegedly hauled and dumped chemicals to a vacant lot near a storm drain. The investigation started when some employees of the New Orleans City Council made a complaint to the Fire Department about leaking drums of chemicals. The LDEQ’s CID investigators went to the site, retrieved identification labels from the drums and traced them back to the original owner. It was there that the investigators learned that a former employee took the drums without permission, dumped them in the vacant lot and intentionally punctured them, allowing their contents to spill out.

So, the next questions are, what does the government do when it starts an investigation and what should the company do when it finds out an investigation is under way? And can the company avoid the process altogether? Those will be topics of future blog posts.

June 03, 2016

There is no other way to look at it – criminal enforcement by the USEPA is down and is down significantly from past years. Why is that? Has the public all of a sudden decided to get religion and comply with all of the environmental laws? I doubt it. The environmental regulations are way to complex and the lure of making fast money is also great. So then, what gives?

In my opinion, there are several factors in play. As detailed in David LaRoss’ May 25, 2016, article in Inside EPA, the “Next Generation” compliance initiative is now in favor over in-person inspections. As Doug Parker, former director of the USEPA OECA, opined, “Next Generation” alone will not achieve a strong enforcement footprint to address potential risks to the environment. While it is intended to cut enforcement costs, as most law enforcement types will tell you, there is no substitute for good old fashioned police work. Next Gen alone will not cut it. There are fewer civil inspectors and there are fewer criminal investigative agents, all leading to much less enforcement.

I did a recent, very informal, survey of fellow practitioners in the environmental criminal defense practice area. Every single one reported that they have fewer cases open now than in the last four years. Based upon the survey, a majority did not currently have more than one active case open today. That compared with three, four, five, six and seven matters open in the last four years for these practitioners. The cases are just not being made by the USEPA CID.

Make no mistake, the USEPA does focus on high-visibility enforcement targets – think Deepwater Horizon, Duke Energy and Volkswagen (why does there always seek to be a disaster the predicates the investigation). But there has been a significant decline in oversight of the low -profile type cases – why has there been no federal criminal investigation as to the Flint, Michigan water issues or the Colorado mine release? The West, TX fertilizer plant explosion (an act of arson) has resulted in strengthening oversight of those chemical storage practices, but that was by executive order, not by initiative of the USEPA.

The USEPA does need to increase staffing and funding levels for enforcement. The USEPA is significantly below the Congressionally mandated level of 200 criminal investigators. Morale within the USEPA may be at an all-time low as well. Are the two related? Probably. Overlay the lack of support for a criminal program by the USEPA Washington leadership and you get the resulting inability to achieve quality environmental enforcement. The lack of support is echoed by Doug Parker’s comment to Inside EPA regarding the “general discouragement within the office of criminal enforcement.”

And what happens when a case is made and brought to the United States Attorney? Many offices just do not have the expertise to prosecute the case. And, there is still some resentment from the “old days” where the USDOJ ENRD had to approve and participate in the case. I have also received some anecdotal information that some United States Attorney's offices have been declining cases brought by the local USEPA CID agents for unknown reasons. They are being sent to the state and county prosecutors for prosecution. That practice has the potential to create discovery issues and sentencing (restitution) issues.

The bottom line? At the USEPA, morale sucks, money lacks and enforcement suffers. Why do I care? On the one hand, I live in this world as well and I want there to be clean water and clean air as well as other benefits of a regulated environmental scheme. I have clients that bend over backwards to comply with the environmental laws. On the other hand, that is what I do for a lining, defending clients when the government comes knocking. So it has an effect on the environmental bar as well.

May 02, 2016

On Friday, April 29, 2016, the Texas Supreme Court handed down an important decision, very favorable to industry, involving the City of Houston’s over-the-top criminal enforcement program. While this one involved the Texas Clean Air Act (“TCAA”), it will have an across-the-board impact on future enforcement actions by the City of Houston.

For those of you outside of Texas, the City of Houston’s environment enforcement division is a HUGE money maker for Houston – bringing in more in penalties and fines that any other enforcement program in the city, including traffic fines and drug-related enforcement. Houston is the country’s fourth largest metropolitan area.

A little background - in 1992, the Houston enacted an air-quality ordinance to regulate air pollution from facilities that were not already regulated under the TCAA. In 2007, Houston amended the 1992 ordinance to establish its own air-quality regulatory-compliance program and adopted a fee schedule to fund the program. The 2007 amendment expanded the 1992 ordinance’s scope to include the regulation of facilities and sources subject to TCEQ regulation under the TCAA and made it “unlawful” to operate a facility inside Houston’s borders unless the facility was registered with Houston.

In February 2008, an industry group, comprised of chemical companies and refineries, filed suit seeking a declaratory judgment and an injunction that the 2007 amendment was invalid and unenforceable under the TCAA, as well as under the Texas Water Code, and the Texas Constitution. After the lawsuit was filed, on May 7, 2008, Houston passed an additional amendment to the air-quality ordinance, providing that a violation of the incorporated TCEQ rules “shall be unlawful” (making it a criminal violation) to be prosecuted in municipal court, with fines between $250.00 and $2,000.00 per day of violation. The industry group won at the trial court level, and the court of appeals reversed the trial court.

In Friday’s ruling, the Texas Supreme Court stated: “the Legislature has enacted a comprehensive and flexible regulatory regime for investigation into possible violations of the Act and consistent enforcement of the state’s air pollution laws. The Legislature enacted specific requirements for criminal prosecution of a violation of the Act or TCEQ rules, orders, or permits. The Ordinance allows the City to circumvent those requirements, creating a parallel enforcement mechanism without deference to the TCEQ’s statutorily mandated discretion. The Legislature’s intent that administrative and civil remedies be applied whenever possible and at the discretion of the TCEQ is thwarted by the Ordinance’s discretionless criminal enforcement provisions.” The Texas Supreme Court concluded that the enforcement provisions of the ordinance were inconsistent with the statutory procedural requirements for criminal prosecution in the TCAA and the Texas Water Code. The enforcement provisions and the registration provisions were found to be preempted.